The U.S. Trade Representative (USTR) issued findings Friday in the Section 301 investigation of Vietnam’s acts, policies and practices related to currency valuation, concluding they are “unreasonable and burden or restrict U.S. commerce.”
In making these findings, USTR consulted with the Department of the Treasury as to matters of currency valuation and Vietnam’s exchange rate policy.
“Unfair acts, policies and practices that contribute to currency undervaluation harm U.S. workers and businesses, and need to be addressed,” USTR Robert E. Lighthizer said. “I hope that the United States and Vietnam can find a path for addressing our concerns.”
USTR said it was not taking any specific actions in connection with the findings at this time, but will continue to evaluate all available options.
This means no tariff increases are being imposed on goods from Vietnam at this time. A report from trade law firm Sandler, Travis & Rosenberg said it is unclear whether and how USTR may do so under President-elect Biden, who will take office on Wednesday.
In a full report on its findings, USTR said its investigation indicated that Vietnam manages its exchange rate based on its interest in achieving certain economic goals, and that the acts, policies and practices it has chosen with respect to the exchange rate “have contributed to undervaluation of the exchange rate.” In addition, the investigation found that Vietnam uses foreign exchange (FX) market interventions as a key tool to manage the exchange rate “in a manner that has contributed to persistent undervaluation, and that this undervalued exchange rate is accompanied by substantial current account and trade imbalances, including with the United States.”
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“It is a widely-accepted norm, as evidenced in international agreements and U.S. law, that acts, policies and practices related to currency valuation should not be undertaken to gain an unfair competitive advantage in international trade,” USTR said. “Such acts, policies or practices should not artificially enhance a country’s exports and restrict its imports in ways that do not reflect the underlying competitiveness. Similarly, existing U.S. and international norms indicate that exchange rates should reflect underlying economic and financial conditions, and that exchange rate action should not prevent balance of payments adjustment.”
The report charged Vietnam with persistent undervaluation of its currency over a course of several years, and more recent, “rapid and significant purchases of FX, which have contributed to undervaluation, and the conditions surrounding Vietnam’s FX market interventions including current account and goods trade surpluses, including with the United States.”
“An affirmative finding is also consistent with a report by the Department of the Treasury that Vietnam has recently engaged in currency manipulation during the 12-month period of July 2019 through June 2020,” USTR said. “Vietnam’s acts, policies and practices that contribute to currency undervaluation through excessive foreign exchange market interventions and other related actions burden or restrict U.S. commerce within the meaning of section 301 of the Trade Act.”
USTR said currency undervaluation effectively lowers the price of exported products from Vietnam into the United States, which makes Vietnamese imports into the U.S. less expensive than they would otherwise be, “which undermines the competitive position of firms in the United States that are competing with lower-priced Vietnamese imports.”
Currency undervaluation raises the local currency price of U.S. exports to Vietnam and “excessive FX market intervention undertaken while a country has a significant current account surplus also undermines U.S. export opportunities.”
The American Apparel and Footwear Association lauded the decision to hold off on instituting new tariffs. “There is never a good time for tariffs, but they would be particularly harmful as all Americans and this industry continue to be impacted by the effects of COVID-19,” said AAFA president and CEO Steve Lamar. “Tariffs are taxes on American consumers, American Workers, and American companies. This has become abundantly clear during the U.S.-China trade war.”
Lamar noted that Vietnam has become a crucial sourcing destination for fashion companies that have worked to diversify sourcing away from China amid rising labor costs on top of the ongoing trade war there. “Adding tariffs to imports from Vietnam would hurt those efforts and investments,” he said.
“We look forward to continuing a dialogue with USTR under the leadership of USTR-designate Katherine Tai and the incoming Biden administration as they seek remedy with Vietnam, based on the findings of the report released today. AAFA will be active in supporting efforts that do not seek tariffs as a remedy,” he said.